AR – What kind of investor are you?
If you’ve just started investing in the stock market, it is necessary that you move forward carefully. But at the same time, it is necessary that you determine your position in the stock market so as to head towards a fruitful future. As every next investor wants to become a great one, it is very important to know the characteristics of a good investor.
A majority of sound investors consistently beat the market not because they have ideal timing or hordes of money. They do it by classifying their natural feelings (both good and bad) and employing the methods, philosophies, and policies that best match the way their brains are wired.
According to Warren Buffet, “Success in investing doesn’t relate with I.Q. … what you need is the temperament to control the urges that get other people into trouble in investing.”
How are you connected?
Probably one — or various – of our investing approaches is best matched to your investing character. In your reading, one or two possibly interested you more than the others. But how well do you know yourself? Do you know your broad-mindedness for risk and loss? Have you located your investing time prospect? To what level are you interested in finding more about stock research? In other terms, what color is your investing jump?
Here’s a short but insightful quiz to help investors like you to answer these questions and find out the investing strategies that are best for you.
You’re at a shop and on the display is a wide range of options for the product you need. Which are you most likely to include in your shopping cart?
- The brand you’ve bought in the past, even though it absences the bells and whistles of some of the others.
- A costlier brand you’ve always wished to try because it’s on sale for 20% off today.
- A brand-new product that promises revolutionary results.
- A sensibly priced product that has not been FDA-approved, but has gotten great reviews from its customers.
You log onto your brokerage account. Which situation make you happy?
- The market’s up a great 10%, but your stock accrued just 1% during the run-up.
- One of the firms you own missed hitting its earnings target and is low 30% as an outcome, giving you the opportunity to buy more shares at fire-sale prices.
- Over the past six months a stock in your portfolio has performed anywhere from
- 10 to Rs, 80. It’s at the low end of that range at present, but you perceive that it has the power to double or even quadruple over time.
- One of your stocks is up 15%, but there’s no clear reason why, so you’ll have to do intensive research to find out.
Which action are you most likely to pick at an amusement park?
- The newly launched 3-D laser Zombie show.
- The Nitro
- Leave the rides and move to the “Tastes of the World” food court.
How much information do you need to feasibly make buy, sell, or hold investment decisions?
- You like to get daily company updates that are greatly followed and analyzed by leading investment experts and general investors.
- You choose to check in on the business — or its customers – first-hand either in person or via online forums.
- You frequently consult filings, trade journals, and industry forums and do all your own research.
- You’re happy with honestly regular coverage of the sector in which the company works, even if news about your specific company can be patterned.
One of your companies is in the headlines today. Which event would not cause you to lose sleep tonight?
- The company mentions it may have to temporarily stop paying its dividend.
- The launch of the company’s next product has been postponed for several months.
- The Board of Directors is making sounds about exiling the CEO in order to install an industry expert.
- The currency of the country in which your company operates has gone down.
The business trajectory that most excites you is…
- A steady, mature company with some space to grow via cost-cutting exertions, strategic attainments, and/or partnerships.
- A novice that has not yet made a name for itself and has no pungent expectations priced into the stock.
- A ground-breaking — and often volatile — company that tests the status quo and has the power to lead a business segment.
- A company that is perfectly positioned to exploit fast-emerging economic opportunities abroad.
What type of volatility are you ready to endure on the road to wealth?
- I’m not searching for impressive growth
- I’m eager to bear a few white-knuckle periods until my investment strikes the bull’s eye.
- I’ll hold on for life — even while everyone else is bailing — if I really think that the long-term payoff will be big.
- I can digest volatility that is outside the company management’s control
Determine your investment temperament.
You’ve really put in hard efforts for the money and even if it means passing up bigger possible returns, you’re most comfortable restricting your exposure to risk. Patience is your investing virtue. Like the great Warren Buffet, you have the temperament to wait for a quality company to go on sale.
Your stocks likely won’t surprise anyone at a party — after all, big-name, been-around-forever firms don’t generally make for fascinating chit-chat. But when the confetti drops, it’s your time to wade through. If your portfolio were a guest, it’d be the designated driver: sober but consistent. It gets you where you need to go with no sharper turns or yelling wheels.
This is the type of investing we practice in our Inside Value and Income Investor services. The earlier focuses primarily on quality businesses that have seen their share prices provisionally reduced. The latter seeks consistent growth with investments that literally pay investors back — dividend stocks.
More risk-taking value investors can widen their stock-hunting horizons by venturing into small-cap territory. If your answers produced a combination of As and Bs, consider giving a slice of your portfolio (perhaps 5% to 10%) to small-cap stocks.
Insightful business observes (e.g., impressive balance sheets, excellent management) are as necessary to you as any investor. But you’re ready to consider these things where few others hard to walk on — in small-cap territory.
While the rest of the world is gripping on the name-brand players, you’re marauding for their smaller, sprightlier competition. Because of their size, these companies perform well under stock market’s setting. The flip side is, definitely, that they can often wildly vary in a single trading day. But you have the space for some risk, predominantly in the pursuit of impressive returns.
You could build a market-winning portfolio exclusively comprised of Hidden Gems. But it’s perhaps more reasonable to focus on just a portion of your investible assets to the best-of-small breed of stocks — ranging from 10% to 40% of a portfolio depending on your comfort quotient.
If the idea of noticing an investment drop 25% in a single day gives you palpitations, then you may want to dedicate less of your portfolio to small company stocks. If “B2s” subjugated your quiz results, then you may have the space to endure the volatility.
Innovation sets your heart competing. When high-def, Bluetooth-enabled, surround-sound rocket comes to stores, you’ll possibly be the first person on your block to get a pair.
In regard to investment, you look companies that test the status quo — those that take on a recognized business, redevelop it, and finally seize the original. Even better are those that create a completely new market for something everyone didn’t even understand we couldn’t live without.
We call these companies Rule Breakers (apt, eh?). And in every scenario, these businesses challenge the rules. Traditional valuation metrics such as P/E ratios and reduced cash-flow calculations don’t find the land of Rule Breakers. The numbers often look madcap because the Street simply doesn’t have the tools to precisely measure these companies’ merits.
Quick change is the M.O. in Rule Breaker territory. So as a shareholder you need to stay cautious and be expressively quick enough to re-judge your investment thesis. In the world of Rule Breakers, flexibility is a must.
This may be the most inspiring kind of investing there is. But you understand the big-risk/big-reward connection. Your mistakes will cost you. But it’s a lot less painful if you spread the risk around like we do in our Rule Breaker service by investing in a trickle of possible high-fliers.
In the search of investment occasions, you’re not frightened to delve into foreign territory — accurately. You recognize that the rate of growth of our economy versus others has changed. The country will still grow, but there are nations where the growth opportunities are planetary.